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EX-32.01 - EXHIBIT 32.01 - Atlantic Union Bankshares Corpexhibit3201_3q16.htm
EX-31.02 - EXHIBIT 31.02 - Atlantic Union Bankshares Corpexhibit3102_3q16.htm
EX-31.01 - EXHIBIT 31.01 - Atlantic Union Bankshares Corpexhibit3101_3q16.htm
EX-15.01 - EXHIBIT 15.01 - Atlantic Union Bankshares Corpexhibit1501_3q16.htm

UNITED STATES
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2016
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-20293
UNION BANKSHARES CORPORATION
(Exact name of registrant as specified in its charter)
VIRGINIA
54-1598552
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
 
1051 East Cary Street
Suite 1200
Richmond, Virginia 23219
(Address of principal executive offices) (Zip Code)
 
(804) 633-5031
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Yes x No ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
Yes x No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
ý
Accelerated filer
¨
Non-accelerated filer
¨
Smaller reporting company
¨
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Yes ¨ No x
 
The number of shares of common stock outstanding as of October 31, 2016 was 43,558,217.



UNION BANKSHARES CORPORATION
FORM 10-Q
INDEX
 
ITEM
 
 
PAGE
 
 
 
 
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 3.
 
 
 
 
 
Item 4.
 
 
 
 
 
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
Item 1A.
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 6.
 
 
 
 
 
 
 







Glossary of Acronyms
 
AFS
Available for sale
ALCO
Asset Liability Committee
ALL
Allowance for loan losses
ASC
Accounting Standards Codification
ASU
Accounting Standards Update
ATM
Automated teller machine
the Bank
Union Bank & Trust
bps
Basis points
the Company
Union Bankshares Corporation
Dodd-Frank Act
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
EPS
Earnings per share
Exchange Act
Securities Exchange Act of 1934
FASB
Financial Accounting Standards Board
FDIC
Federal Deposit Insurance Corporation
Federal Reserve
Board of Governors of the Federal Reserve System
Federal Reserve Bank
Federal Reserve Bank of Richmond
FHLB
Federal Home Loan Bank of Atlanta
U.S. GAAP or GAAP
Accounting principles generally accepted in the United States
HELOC
Home equity line of credit
HTM
Held to maturity
LIBOR
London Interbank Offered Rate
NPA
Nonperforming assets
ODCM
Old Dominion Capital Management, Inc.
OREO
Other real estate owned
OTTI
Other than temporary impairment
PCI
Purchased credit impaired
ROA
Return on average assets
ROTCE
Return on average tangible common equity
StellarOne
StellarOne Corporation
TDR
Troubled debt restructuring
UMG
Union Mortgage Group, Inc.




PART I – FINANCIAL INFORMATION
 
ITEM 1 – FINANCIAL STATEMENTS
 
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
 
September 30,
2016
 
December 31,
2015
 
(Unaudited)
 
(Audited)
ASSETS
 

 
 

Cash and cash equivalents:
 

 
 

Cash and due from banks
$
103,979

 
$
111,323

Interest-bearing deposits in other banks
51,303

 
29,670

Federal funds sold
893

 
1,667

Total cash and cash equivalents
156,175

 
142,660

Securities available for sale, at fair value
954,984

 
903,292

Securities held to maturity, at carrying value
200,839

 
205,374

Restricted stock, at cost
63,204

 
51,828

Loans held for sale
46,814

 
36,030

Loans held for investment, net of deferred fees and costs
6,148,918

 
5,671,462

Less allowance for loan losses
36,542

 
34,047

Net loans held for investment
6,112,376

 
5,637,415

Premises and equipment, net
123,416

 
126,028

Other real estate owned, net of valuation allowance
10,581

 
15,299

Goodwill
298,191

 
293,522

Core deposit intangibles, net
18,001

 
23,310

Other amortizable intangibles, net
4,342

 

Bank owned life insurance
177,847

 
173,687

Other assets
91,460

 
84,846

Total assets
$
8,258,230

 
$
7,693,291

LIABILITIES
 

 
 

Noninterest-bearing demand deposits
$
1,442,268

 
$
1,372,937

Interest-bearing deposits
4,816,238

 
4,590,999

Total deposits
6,258,506

 
5,963,936

Securities sold under agreements to repurchase
64,225

 
84,977

Other short-term borrowings
601,500

 
304,000

Long-term borrowings
259,902

 
291,198

Other liabilities
73,133

 
53,813

Total liabilities
7,257,266

 
6,697,924

Commitments and contingencies (Note 6)


 


STOCKHOLDERS' EQUITY
 

 
 

Common stock, $1.33 par value, shares authorized 100,000,000; issued and outstanding, 43,556,486 shares and 44,785,674 shares, respectively.
57,444

 
59,159

Additional paid-in capital
603,785

 
631,822

Retained earnings
329,876

 
298,134

Accumulated other comprehensive income
9,859

 
6,252

Total stockholders' equity
1,000,964

 
995,367

Total liabilities and stockholders' equity
$
8,258,230

 
$
7,693,291

See accompanying notes to consolidated financial statements.

-2-


UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in thousands, except share data)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
2016
 
September 30,
2015
 
September 30,
2016
 
September 30,
2015
Interest and dividend income:
 
 
 
 
 

 
 

Interest and fees on loans
$
66,190

 
$
62,651

 
$
193,884

 
$
185,706

Interest on deposits in other banks
65

 
23

 
178

 
65

Interest and dividends on securities:
 
 
 
 
 

 
 

Taxable
4,732

 
3,954

 
13,558

 
11,621

Nontaxable
3,446

 
3,372

 
10,344

 
10,062

Total interest and dividend income
74,433

 
70,000

 
217,964

 
207,454

 
 
 
 
 
 
 
 
Interest expense:
 
 
 
 
 

 
 

Interest on deposits
4,552

 
4,204

 
12,945

 
11,204

Interest on federal funds purchased
2

 
1

 
5

 
6

Interest on short-term borrowings
763

 
223

 
2,093

 
728

Interest on long-term borrowings
2,088

 
2,128

 
6,386

 
6,287

Total interest expense
7,405

 
6,556

 
21,429

 
18,225

 
 
 
 
 
 
 
 
Net interest income
67,028

 
63,444

 
196,535

 
189,229

Provision for credit losses
2,472

 
2,062

 
7,376

 
7,561

Net interest income after provision for credit losses
64,556

 
61,382

 
189,159

 
181,668

 
 
 
 
 
 
 
 
Noninterest income:
 
 
 
 
 

 
 

Service charges on deposit accounts
4,965

 
4,965

 
14,454

 
13,800

Other service charges and fees
4,397

 
3,983

 
12,971

 
11,618

Fiduciary and asset management fees
2,844

 
2,304

 
7,315

 
6,835

Mortgage banking income, net
3,207

 
2,630

 
8,324

 
7,582

Gains on securities transactions, net

 
75

 
145

 
672

Other-than-temporary impairment losses

 
(300
)
 

 
(300
)
Bank owned life insurance income
1,389

 
1,161

 
4,122

 
3,431

Other operating income
2,148

 
1,907

 
5,526

 
4,352

Total noninterest income
18,950

 
16,725

 
52,857

 
47,990

 
 
 
 
 
 
 
 
Noninterest expenses:
 
 
 
 
 

 
 

Salaries and benefits
30,493

 
25,853

 
87,061

 
78,905

Occupancy expenses
4,841

 
4,915

 
14,627

 
15,220

Furniture and equipment expenses
2,635

 
3,015

 
7,867

 
8,818

Printing, postage, and supplies
1,147

 
1,191

 
3,566

 
3,970

Communications expense
948

 
1,159

 
2,964

 
3,481

Technology and data processing
3,917

 
3,549

 
11,340

 
10,020

Professional services
1,895

 
1,991

 
6,432

 
5,008

Marketing and advertising expense
1,975

 
1,781

 
5,838

 
5,841

FDIC assessment premiums and other insurance
1,262

 
1,351

 
4,003

 
4,030

Other taxes
639

 
1,569

 
3,864

 
4,674

Loan-related expenses
1,531

 
1,341

 
3,638

 
3,173

OREO and credit-related expenses
503

 
1,263

 
1,965

 
4,415

Amortization of intangible assets
1,843

 
2,074

 
5,468

 
6,435

Training and other personnel costs
863

 
1,198

 
2,512

 
2,831

Other expenses
2,421

 
1,075

 
5,291

 
5,584

Total noninterest expenses
56,913

 
53,325

 
166,436

 
162,405

 
 
 
 
 
 
 
 
Income before income taxes
26,593

 
24,782

 
75,580

 
67,253

Income tax expense
6,192

 
6,566

 
18,881

 
17,989

Net income
$
20,401

 
$
18,216

 
$
56,699

 
$
49,264

Basic earnings per common share
$
0.47

 
$
0.40

 
$
1.29

 
$
1.09

Diluted earnings per common share
$
0.47

 
$
0.40

 
$
1.29

 
$
1.09

Dividends declared per common share
$
0.19

 
$
0.17

 
$
0.57

 
$
0.49

Basic weighted average number of common shares outstanding
43,565,937

 
45,087,409

 
43,853,548

 
45,107,290

Diluted weighted average number of common shares outstanding
43,754,915

 
45,171,610

 
43,967,725

 
45,189,578

See accompanying notes to consolidated financial statements.

-3-


UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(Dollars in thousands)
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
Net income
$
20,401

 
$
18,216

 
$
56,699

 
$
49,264

Other comprehensive income (loss):
 

 
 

 
 

 
 

Cash flow hedges:
 

 
 

 
 

 
 

Change in fair value of cash flow hedges
(78
)
 
(2,328
)
 
(3,766
)
 
(2,009
)
Reclassification adjustment for losses (gains) included in net income (net of tax, $83 and $84 for the three months and $233 and $253 for the nine months ended September 30, 2016 and 2015, respectively)
154

 
157

 
433

 
470

AFS securities:
 

 
 

 
 

 
 

Unrealized holding gains (losses) arising during period (net of tax, $604 and $673 for the three months and $4,227 and $976 for the nine months ended September 30, 2016 and 2015, respectively)
1,121

 
1,250

 
7,851

 
(1,812
)
Reclassification adjustment for losses (gains) included in net income (net of tax, $0 and $79 for the three months and $51 and $130 for the nine months ended September 30, 2016 and 2015, respectively)

 
146

 
(95
)
 
(242
)
HTM securities:
 

 
 

 
 

 
 

Accretion of unrealized gain for AFS securities transferred to HTM (net of tax, $128 and $166 for the three months and $439 and $278 for the nine months ended September 30, 2016 and 2015, respectively)
(237
)
 
(308
)
 
(816
)
 
(516
)
Other comprehensive income (loss)
960

 
(1,083
)
 
3,607

 
(4,109
)
Comprehensive income
$
21,361

 
$
17,133

 
$
60,306

 
$
45,155

See accompanying notes to consolidated financial statements.

-4-


UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015
(Dollars in thousands, except share amounts)
 
 
Common
Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
 
 
 
 
 
 
 
 
 
 
Balance - December 31, 2014
$
59,795

 
$
643,443

 
$
261,676

 
$
12,255

 
$
977,169

Net income - 2015
 

 
 

 
49,264

 
 

 
49,264

Other comprehensive income (net of taxes of $1,130)
 

 
 

 
 

 
(4,109
)
 
(4,109
)
Dividends on common stock ($0.49 per share)
 

 
 

 
(21,000
)
 
 

 
(21,000
)
Stock purchased under stock repurchase plan (347,021 shares)
(460
)
 
(7,535
)
 
 

 
 

 
(7,995
)
Issuance of common stock under Dividend Reinvestment Plan (52,201 shares)
69

 
1,030

 
(1,099
)
 
 

 

Issuance of common stock under Equity Compensation Plans (37,124 shares)
49

 
517

 
 

 
 

 
566

Issuance of common stock for services rendered (19,417 shares)
26

 
420

 
 

 
 

 
446

Vesting of restricted stock, including tax effects, under Equity Compensation Plans (26,576 shares)
35

 
(321
)
 
 

 
 

 
(286
)
Stock-based compensation expense
 

 
957

 
 

 
 

 
957

Balance - September 30, 2015
$
59,514

 
$
638,511

 
$
288,841

 
$
8,146

 
$
995,012

 
 
 
 
 
 
 
 
 
 
Balance - December 31, 2015
$
59,159

 
$
631,822

 
$
298,134

 
$
6,252

 
$
995,367

Net income - 2016
 

 
 

 
56,699

 
 

 
56,699

Other comprehensive income (net of taxes of $3,970)
 

 
 

 
 

 
3,607

 
3,607

Issuance of common stock in regard to acquisition (17,232 shares)
23

 
430

 
 
 
 
 
453

Dividends on common stock ($0.57 per share)
 

 
 

 
(24,957
)
 
 

 
(24,957
)
Stock purchased under stock repurchase plan (1,411,131 shares)
(1,876
)
 
(31,300
)
 
 

 
 

 
(33,176
)
Issuance of common stock under Equity Compensation Plans (54,044 shares)
72

 
681

 
 

 
 

 
753

Issuance of common stock for services rendered (14,576 shares)
19

 
360

 
 

 
 

 
379

Vesting of restricted stock, including tax effects, under Equity Compensation Plans (35,515 shares)
47

 
(492
)
 
 

 
 

 
(445
)
Stock-based compensation expense
 

 
2,284

 
 

 
 

 
2,284

Balance - September 30, 2016
$
57,444

 
$
603,785

 
$
329,876

 
$
9,859

 
$
1,000,964


See accompanying notes to consolidated financial statements.

-5-


UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015
(Dollars in thousands)
 
2016
 
2015
Operating activities:
 

 
 

Net income
$
56,699

 
$
49,264

Adjustments to reconcile net income to net cash and cash equivalents provided by (used in) operating activities:
 

 
 

Depreciation of premises and equipment
7,617

 
8,097

Writedown of OREO
879

 
1,773

Other-than-temporary impairment recognized in earnings

 
300

Amortization, net
8,837

 
10,080

Amortization (accretion) related to acquisition, net
1,400

 
1,175

Provision for credit losses
7,376

 
7,561

Losses (gains) on securities transactions, net
(145
)
 
(672
)
Bank owned life insurance income
(4,122
)
 
(3,431
)
Decrease (increase) in loans held for sale, net
(10,784
)
 
3,206

Losses (gains) on sales of other real estate owned, net
(278
)
 
80

Losses (gains) on sales of premises, net
97

 
98

Stock-based compensation expenses
2,284

 
957

Issuance of common stock for services
379

 
446

Net decrease (increase) in other assets
(11,169
)
 
(461
)
Net increase (decrease) in other liabilities
11,005

 
691

Net cash and cash equivalents provided by (used in) operating activities
70,075

 
79,164

Investing activities:
 

 
 

Purchases of securities available for sale
(159,863
)
 
(171,203
)
Proceeds from sales of securities available for sale
18,272

 
63,928

Proceeds from maturities, calls and paydowns of securities available for sale
83,942

 
110,132

Proceeds from maturities, calls and paydowns of securities held to maturity
1,841

 
795

Net decrease (increase) in loans held for investment
(479,346
)
 
(228,839
)
Net decrease (increase) in premises and equipment
(5,102
)
 
(2,541
)
Proceeds from sales of other real estate owned
4,982

 
6,374

Improvements to other real estate owned

 
(308
)
Cash paid for equity-method investments

 
(355
)
Cash paid in acquisition
(4,077
)
 

Cash acquired in acquisitions
207

 

Net cash and cash equivalents provided by (used in) investing activities
(539,144
)
 
(222,017
)
Financing activities:
 

 
 

Net increase (decrease) in noninterest-bearing deposits
69,331

 
138,667

Net increase (decrease) in interest-bearing deposits
225,239

 
43,259

Net increase (decrease) in short-term borrowings
276,748

 
44,024

Net increase (decrease) in long-term borrowings
(30,909
)
 
(8,448
)
Cash dividends paid - common stock
(24,957
)
 
(21,000
)
Repurchase of common stock
(33,176
)
 
(7,995
)
Issuance of common stock
753

 
566

Vesting of restricted stock, including tax effects
(445
)
 
(286
)
Net cash and cash equivalents provided by (used in) financing activities
482,584

 
188,787

Increase (decrease) in cash and cash equivalents
13,515

 
45,934

Cash and cash equivalents at beginning of the period
142,660

 
133,260

Cash and cash equivalents at end of the period
$
156,175

 
$
179,194

Supplemental Disclosure of Cash Flow Information
 

 
 

Cash payments for:
 

 
 

Interest
$
21,812

 
$
20,720

Income taxes
19,800

 
13,800

Supplemental schedule of noncash investing and financing activities
 

 
 

Unrealized (losses) gains on securities available for sale
$
11,932

 
$
(3,160
)
Transfer from securities available for sale to securities held to maturity

 
201,822

Transfer from loans held for investment to loans held for sale

 
26,400

Changes in fair value of interest rate swap loss
(3,333
)
 
(1,539
)
Transfers between loans and other real estate owned
865

 
1,493

Transfers from bank premises to other real estate owned

 
402

Issuance of common stock in exchange for net assets in acquisition
453

 

See accompanying notes to consolidated financial statements.

-6-


UNION BANKSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
1. ACCOUNTING POLICIES

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Significant inter-company accounts and transactions have been eliminated in consolidation.
 
The unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and follow general practice within the banking industry. Accordingly, the unaudited consolidated financial statements do not include all the information and footnotes required by U.S. GAAP for complete financial statements; however, in the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of the interim periods presented have been made. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year.
 
These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2015 Annual Report on Form 10-K. Certain prior period amounts have been reclassified to conform to current period presentation.

Business Combinations
On May 31, 2016, the Bank completed its acquisition of ODCM, a Charlottesville, Virginia based registered investment advisor with nearly $300.0 million in assets under management at the time of the acquisition. The acquisition date fair value of consideration transferred totaled $9.1 million, which consisted of $4.1 million in cash, $453,000 in stock, and the remainder being contingent on achieving certain performance metrics. The contingent consideration is carried at fair value and is reported as a component of “Other Liabilities” in the Consolidated Balance Sheet. The fair value of this liability will be assessed at each reporting period. 

In connection with the transaction, the Company recorded $4.7 million in goodwill and $4.5 million of amortizable assets, which primarily relate to the value of customer relationships. The Company is amortizing these intangibles assets over the period of expected benefit, which ranges from 5 to 10 years using a straight-line method. The transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration exchanged were recorded at estimated fair values on the acquisition date. During the current quarter, the Company finalized the valuation of certain amortizable intangible assets which increased the fair value and also impacting the recognized goodwill. The fair values are subject to refinement for up to one year after the closing date of the acquisition.
 
Loans
The Company originates commercial and consumer loans to customers. A substantial portion of the loan portfolio is represented by commercial and residential real estate loans (including acquisition and development loans and residential construction loans) throughout its market area. The ability of the Company’s debtors to honor their contracts on such loans is dependent upon the real estate and general economic conditions in those markets, as well as other factors.
 
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balances adjusted for any charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.
 
As of January 1, 2016, the Company enhanced the loan portfolio segmentation to better align with how the Company manages credit risk and to better align with industry practice. Below is a summary of the new loan segmentation.
 
Construction and Land Development – construction loans generally made to commercial and residential builders for specific construction projects. The successful repayment of these types of loans is generally dependent upon (a) a commitment for permanent financing from the Company, or (b) from the sale of the constructed property. These loans carry more risk than both types of commercial real estate term loans due to the dynamics of construction projects, changes in interest rates, the long-term financing market, and state and local government regulations. As in commercial real estate term lending, the Company manages risk by using specific underwriting policies and procedures for these types of loans and by avoiding excessive concentrations to any one business or industry.
 

-7-


Also, included in this category are loans generally made to residential home builders to support their lot and home inventory needs. Repayment relies upon the successful performance of the underlying residential real estate project. This type of lending carries a higher level of risk as compared to other commercial lending. This class of lending manages risks related to residential real estate market conditions, a functioning first and secondary market in which to sell residential properties, and the borrower’s ability to manage inventory and run projects. The Company manages this risk by lending to experienced builders and developers by using specific underwriting policies and procedures for these types of loans and by avoiding excessive concentrations with any particular customer or geographic region.
 
Commercial Real Estate – Owner Occupied - term loans made to support owner occupied real estate properties that rely upon the successful operation of the business occupying the property for repayment. General market conditions and economic activity may affect these types of loans. In addition to using specific underwriting policies and procedures for these types of loans, the Company manages risk by avoiding concentrations to any one business or industry.
 
Commercial Real Estate – Non-Owner Occupied - term loans typically made to borrowers to support income producing properties that rely upon the successful operation of the property for repayment. General market conditions and economic activity may impact the performance of these types of loans. In addition to using specific underwriting policies and procedures for these types of loans, the Company manages risk by diversifying the lending to various lines of businesses, such as retail, office, office warehouse, and hotel as well as avoiding concentrations to any one business or industry.
 
Residential 1-4 Family – loans generally made to both commercial and residential borrowers. Mortgage loan portfolios carry risks associated with the creditworthiness of the borrower or the tenant and changes in loan-to-value ratios. The Company manages these risks through policies and procedures such as limiting loan-to-value ratios at origination, experienced underwriting, requiring standards for appraisers, and not making subprime loans.
 
Multifamily Real Estate – loans made to real estate investors to support permanent financing for multifamily residential income producing properties that rely on the successful operation of the property for repayment. This management mainly involves property maintenance and collection of rents due from tenants. This type of lending carries a lower level of risk as compared to other commercial lending. In addition, underwriting requirements for multifamily properties are stricter than for other non-owner-occupied property types. The Company manages this risk by avoiding concentrations with any particular customer.
 
Commercial and Industrial – loans generally made to support the Company’s borrowers’ need for equipment/vehicle purchases and short-term or seasonal cash flow needs. Repayment relies upon the successful operation of the business. This type of lending carries a lower level of commercial credit risk as compared to other commercial lending. The Company manages this risk by using general underwriting policies and procedures for these types of loans and by avoiding concentrations to any one business or industry.
 
HELOC – the consumer HELOC portfolio carries risks associated with the creditworthiness of the borrower and changes in loan-to-value ratios. The Company manages these risks through policies and procedures such as limiting loan-to-value ratios at origination, experienced underwriting, requiring standards for appraisers, and not making subprime loans.
 
Auto – the consumer indirect auto lending portfolio generally carries certain risks associated with the values of the collateral that management must mitigate. The Company focuses its indirect auto lending on one to two year old used vehicles where substantial depreciation has already occurred thereby minimizing the risk of significant loss of collateral values in the future. This type of lending places reliance on computer-based loan approval systems to supplement other underwriting standards.
 
Consumer and all other - portfolios carry risks associated with the creditworthiness of the borrower and changes in the economic environment. The Company manages these risks through policies and procedures such as experienced underwriting, maximum debt to income ratios, and minimum borrower credit scores. Also included in this category are loans that generally support small business lines of credit and agricultural lending neither of which are a material source of business for the Company.
 
Affordable Housing Entities
The Company invests in private investment funds that make equity investments in multifamily affordable housing properties that provide affordable housing tax credits for these investments. The activities of these entities are financed with a combination of invested equity capital and debt. For the three and nine months ended September 30, 2016, the Company recognized amortization of $185,000 and $445,000, respectively, and tax credits of $265,000 and $685,000, respectively, associated with these investments within “Income tax expense” on the Company’s Consolidated Statements of Income. For the three and nine months ended September 30, 2015, the Company recognized amortization of $118,000 and $397,000, respectively, and tax

-8-


credits of $213,000 and $641,000, respectively. The carrying value of the Company’s investments in these qualified affordable housing projects was $8.0 million and $8.5 million as of September 30, 2016 and December 31, 2015, respectively. The Company recorded a liability of $5.3 million for the related unfunded commitments as of September 30, 2016, which are expected to be paid from 2016 to 2019.
 
Adoption of New Accounting Standards
In February 2015, the FASB issued revised guidance to simplify the consolidation assessment required to evaluate whether organizations should consolidate certain legal entities such as limited partnerships, limited liability corporations, and securitization structures. The guidance also removed the indefinite deferral of specialized guidance for certain investment funds. The Company adopted ASU No. 2015-02, “Amendments to the Consolidation Analysis” during the first quarter of 2016. The adoption of ASU 2015-02 did not have a material impact on the Company’s consolidated financial statements.
 
Recent Accounting Pronouncements
In January 2016, the FASB issued ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities.” This ASU requires an entity to: (i) measure equity investments at fair value through net income, with certain exceptions; (ii) present in OCI the changes in instrument-specific credit risk for financial liabilities measured using the fair value option; (iii) present financial assets and financial liabilities by measurement category and form of financial asset; (iv) calculate the fair value of financial instruments for disclosure purposes based on an exit price and; (v) assess a valuation allowance on deferred tax assets related to unrealized losses of AFS debt securities in combination with other deferred tax assets. The ASU provides an election to subsequently measure certain nonmarketable equity investments at cost less any impairment and adjusted for certain observable price changes. The ASU also requires a qualitative impairment assessment of such equity investments and amends certain fair value disclosure requirements. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is only permitted for the provision related to instrument-specific credit risk. The Company is currently assessing the impact ASU 2016-01 will have on its consolidated financial statements.
 
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” This ASU requires lessees to put most leases on their balance sheets, but recognize expenses in the income statement in a manner similar to today’s accounting. The guidance also eliminates the real estate-specific provisions and changes the guidance on sale-leaseback transactions, initial direct costs, and lease executory costs for all entities. For lessors, the standard modifies the classification criteria and the accounting for sales-type and direct financing leases. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The Company is currently assessing the impact ASU 2016-02 will have on its consolidated financial statements.
 
In March 2016, the FASB issued ASU No. 2016-05, “Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships.” This ASU clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument in an existing hedging relationship would not, in and of itself, be considered a termination of the derivative instrument or a change in a critical term of the hedging relationship. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. The Company does not expect the adoption of ASU 2016-05 to have a material impact on its consolidated financial statements.
 
In March 2016, the FASB issued ASU No. 2016-06, “Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments.” This ASU clarifies that in assessing whether an embedded contingent put or call option is clearly and closely related to the debt host, an entity is required to perform only the four-step decision sequence in ASC 815-15-25-42 (as amended by the ASU). The entity does not have to separately assess whether the event that triggers its ability to exercise the contingent option is itself indexed only to interest rates or credit risk. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. The Company has concluded the adoption of ASU 2016-06 will not have a material impact on its consolidated financial statements.
 
In March 2016, the FASB issued ASU No. 2016-07, “Investments – Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting.” This ASU simplifies the equity method of accounting by eliminating the requirement to retrospectively apply the equity method to an investment that subsequently qualifies for such accounting as a result of an increase in the level of ownership interest or degree of influence. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendments should be applied prospectively and early adoption is permitted. The Company has concluded the adoption of ASU 2016-07 will not have a material impact on its consolidated financial statements.
 

-9-


In March 2016, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net).” This ASU amends the principal-versus-agent implementation guidance and illustrations in the FASB’s new revenue standard (ASU 2014-09) and clarifies that an entity should evaluate whether it is the principal or the agent for each specified good or service promised in a contract with a customer. The ASU has the same effective date as the new revenue standard (as amended by the one-year deferral and the early adoption provisions in ASU 2015-14 delaying the effective date to fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017). In addition, entities are required to adopt the ASU by using the same transition method they used to adopt the new revenue standard. The Company is currently assessing the impact ASU 2016-08 will have on its consolidated financial statements.
 
In March 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” This ASU simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted; however, if the Company elects to early adopt, then all amendments must be adopted in the same period. The Company has concluded the adoption of ASU 2016-07 will not have a material impact on its consolidated financial statements.
 
In April 2016, the FASB issued ASU No. 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing.” This ASU amends certain aspects of the FASB’s new revenue standard, specifically the standard’s guidance on identifying performance obligations and the implementation guidance on licensing. The amendments in this update affect the guidance in ASU 2014-09, Revenue from Contracts with Customers, which is not yet effective. The ASU has the same effective date as the new revenue standard (as amended by the one-year deferral and the early adoption provisions in ASU 2015-14). The Company is currently assessing the impact ASU 2016-10 will have on its consolidated financial statements.

In May 2016, the FASB issued ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. This ASU amends certain aspects of the FASB's new revenue standard to reduce the potential for diversity in practice at the initial application of Topic 606 by entities with transactions that fall into the scope of this guidance, as well as reducing the cost and complexity of applying Topic 606 at the transition date and on a continual basis. The amendment affects ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), that is not yet effective. The Company is currently assessing the impact ASU 2016-12 will have on its consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU updates the existing guidance to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendment replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and required consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendment is effective for fiscal years beginning after December 15, 2019. The Company is currently assessing the impact ASU 2016-13 will have on its consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Payments (a consensus of Merging Issues Task Force)." This ASU attempts to clarify how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The purpose of this update is to reduce existing diversity in practice in eight areas addressed by the update. The amendment will be effective for the Company for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The Company has concluded the adoption of ASU 2016-15 will not have a material impact on its consolidated financial statements.


-10-


2. SECURITIES 

Available for Sale
The amortized cost, gross unrealized gains and losses, and estimated fair values of securities available for sale as of September 30, 2016 and December 31, 2015 are summarized as follows (dollars in thousands):
 
 
Amortized
 
Gross Unrealized
 
Estimated
 
Cost
 
Gains
 
(Losses)
 
Fair Value
September 30, 2016
 

 
 

 
 

 
 

Obligations of states and political subdivisions
$
266,291

 
$
13,147

 
$
(215
)
 
$
279,223

Corporate bonds
122,130

 
1,196

 
(1,579
)
 
121,747

Mortgage-backed securities
529,228

 
11,877

 
(509
)
 
540,596

Other securities
13,385

 
33

 

 
13,418

Total available for sale securities
$
931,034

 
$
26,253

 
$
(2,303
)
 
$
954,984

 
 
 
 
 
 
 
 
December 31, 2015
 

 
 

 
 

 
 

Obligations of states and political subdivisions
$
257,740

 
$
10,479

 
$
(140
)
 
$
268,079

Corporate bonds
77,628

 
55

 
(1,704
)
 
75,979

Mortgage-backed securities
544,823

 
6,127

 
(2,779
)
 
548,171

Other securities
11,085

 

 
(22
)
 
11,063

Total available for sale securities
$
891,276

 
$
16,661

 
$
(4,645
)
 
$
903,292

 
The following table shows the gross unrealized losses and fair value (in thousands) of the Company’s available for sale investments with unrealized losses that are not deemed to be other-than-temporarily impaired as of September 30, 2016 and December 31, 2015. These are aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position.
 
 
Less than 12 months
 
More than 12 months
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
September 30, 2016
 

 
 

 
 

 
 

 
 

 
 

Obligations of states and political subdivisions
$
11,640

 
$
(209
)
 
$
655

 
$
(6
)
 
$
12,295

 
$
(215
)
Mortgage-backed securities
37,739

 
(156
)
 
43,430

 
(353
)
 
81,169

 
(509
)
Corporate bonds and other securities
5,059

 
(16
)
 
41,000

 
(1,563
)
 
46,059

 
(1,579
)
Total available for sale
$
54,438

 
$
(381
)
 
$
85,085

 
$
(1,922
)
 
$
139,523

 
$
(2,303
)
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
 

 
 

 
 

 
 

 
 

 
 

Obligations of states and political subdivisions
$
8,114

 
$
(70
)
 
$
4,950

 
$
(70
)
 
$
13,064

 
$
(140
)
Mortgage-backed securities
287,113

 
(2,442
)
 
21,660

 
(337
)
 
308,773

 
(2,779
)
Corporate bonds and other securities
36,157

 
(751
)
 
19,558

 
(975
)
 
55,715

 
(1,726
)
Total available for sale
$
331,384

 
$
(3,263
)
 
$
46,168

 
$
(1,382
)
 
$
377,552

 
$
(4,645
)
 
As of September 30, 2016, there were $85.1 million, or 28 issues, of individual available for sale securities that had been in a continuous loss position for more than 12 months. These securities had an unrealized loss of $1.9 million and consisted of municipal obligations, mortgage-backed securities, and corporate bonds. As of December 31, 2015, there were $46.2 million, or 20 issues, of individual securities that had been in a continuous loss position for more than 12 months. These securities had an unrealized loss of $1.4 million and consisted of municipal obligations, mortgage-backed securities, corporate bonds, and other securities. The Company has determined that these securities are temporarily impaired as of September 30, 2016 and December 31, 2015 for the reasons set out below:
 

-11-


Mortgage-backed securities. This category’s unrealized losses are primarily the result of interest rate fluctuations. Because the decline in market value is attributable to changes in interest rates and not credit quality, the Company does not intend to sell the investments, and it is not likely that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired. Also, the majority of the Company’s mortgage-backed securities are agency-backed securities, which have a government guarantee.
 
Obligations of state and political subdivisions. This category’s unrealized losses are primarily the result of interest rate fluctuations and also a certain few ratings downgrades brought about by the impact of the economic downturn on states and political subdivisions. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the cost basis of each investment. Because the Company does not intend to sell any of the investments and the accounting standard of “more likely than not” has not been met for the Company to be required to sell any of the investments before recovery of its amortized cost basis, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired.
 
Corporate bonds. The Company’s unrealized losses in corporate debt securities are related to both interest rate fluctuations and ratings downgrades for a limited number of securities. The majority of the securities remain investment grade and the Company’s analysis did not indicate the existence of a credit loss. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the cost basis of each investment. Because the Company does not intend to sell any of the investments before recovery of its amortized cost basis, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired.
 
The following table presents the amortized cost and estimated fair value of available for sale securities as of September 30, 2016 and December 31, 2015, by contractual maturity (dollars in thousands). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
 
 
September 30, 2016
 
December 31, 2015
 
Amortized
Cost
 
Estimated
Fair Value
 
Amortized
Cost
 
Estimated
Fair Value
Due in one year or less
$
16,667

 
$
16,860

 
$
8,380

 
$
8,370

Due after one year through five years
109,700

 
113,093

 
65,326

 
66,996

Due after five years through ten years
314,903

 
324,270

 
296,864

 
301,920

Due after ten years
489,764

 
500,761

 
520,706

 
526,006

Total securities available for sale
$
931,034

 
$
954,984

 
$
891,276

 
$
903,292

 
The following table presents the estimated fair value of available for sale securities which were pledged to secure public deposits, repurchase agreements, and for other purposes as permitted or required by law as of September 30, 2016 and December 31, 2015 (dollars in thousands):
 
 
September 30, 2016
 
December 31, 2015
Public deposits
$
183,841

 
$
184,635

Repurchase agreements
116,844

 
126,120

Other purposes (1)
23,326

 
26,546

Total pledged securities
$
324,011

 
$
337,301

 
(1) The "Other purposes" category consists of borrowings, derivatives, and accounts held at the Bank.
 

-12-


Held to Maturity
During the second quarter of 2015, the Company transferred securities, which it intends and has the ability to hold until maturity, with a fair value of $201.8 million on the date of transfer, from securities available for sale to securities held to maturity. The Company transferred these securities to held to maturity to reduce the impact of price volatility on capital and in consideration of changes to the regulatory environment. The securities included net pre-tax unrealized gains of $8.1 million at the date of transfer with a remaining balance of $5.6 million as of September 30, 2016 and $6.8 million as of December 31, 2015.
 
The Company reports securities held to maturity on the Consolidated Balance Sheets at carrying value. Carrying value is amortized cost which includes any unamortized unrealized gains and losses recognized in accumulated other comprehensive income prior to reclassifying the securities from securities available for sale to securities held to maturity. Investment securities transferred into the held to maturity category from the available for sale category are recorded at fair value at the date of transfer. The unrealized holding gain or loss at the date of transfer is retained in accumulated other comprehensive income and in the carrying value of the securities held to maturity. Such unrealized gains/(losses) are accreted over the remaining life of the security with no impact on future net income.
 
The carrying value, gross unrealized gains and losses, and estimated fair values of securities held to maturity as of September 30, 2016 and December 31, 2015 are summarized as follows (dollars in thousands):
 
 
Carrying
 
Gross Unrealized
 
Estimated
 
Value (1)
 
Gains
 
(Losses)
 
Fair Value
September 30, 2016
 

 
 

 
 

 
 

Obligations of states and political subdivisions
$
200,839

 
$
8,959

 
$
(81
)
 
$
209,717

 
 
 
 
 
 
 
 
December 31, 2015
 

 
 

 
 

 
 

Obligations of states and political subdivisions
$
205,374

 
$
5,748

 
$
(1,685
)
 
$
209,437

 
(1) The carrying value includes $5.6 million as of September 30, 2016 and $6.8 million as of December 31, 2015 of net unrealized gains present at the time of transfer from available for sale securities, net of any accretion.
 
The following table shows the gross unrealized losses and fair value (in thousands) of the Company’s held to maturity securities with unrealized losses that are not deemed to be other-than-temporarily impaired as of September 30, 2016 and December 31, 2015. These are aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position.
 
 
Less than 12 months
 
More than 12 months
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
September 30, 2016
 

 
 

 
 

 
 

 
 

 
 

Obligations of states and political subdivisions
$

 
$

 
$
661

 
$
(81
)
 
$
661

 
$
(81
)
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
 
 
 
 
 
 
 
 
 
 
 
Obligations of states and political subdivisions
$
7,056

 
$
(1,685
)
 
$

 
$

 
$
7,056

 
$
(1,685
)
 
As of September 30, 2016, there was $661,000, or 1 issue, of an individual held to maturity security that had been in a continuous loss position for more than 12 months. This security had an unrealized loss of $81,000 and consisted of a municipal obligation. The Company has determined that these securities in a loss position are temporarily impaired as of September 30, 2016 and December 31, 2015 for the reasons set out below:

Obligations of states and political subdivisions. This category’s unrealized losses are primarily the result of interest rate fluctuations and also a certain few ratings downgrades brought about by the impact of the economic downturn on states and political subdivisions. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the cost basis of each investment. Because the Company does not intend to sell any of the investments and the accounting standard of “more likely than not” has not been met for the Company to be required to sell any of the investments before

-13-


recovery of its amortized cost basis, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired.

The following table presents the amortized cost and estimated fair value of held to maturity securities as of September 30, 2016 and December 31, 2015, by contractual maturity (dollars in thousands). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
 
 
September 30, 2016
 
December 31, 2015
 
Carrying
Value (1)
 
Estimated
Fair Value
 
Carrying
Value
(1)
 
Estimated
Fair Value
Due in one year or less
$
850

 
$
850

 
$
1,488

 
$
1,491

Due after one year through five years
25,918

 
26,561

 
4,294

 
4,348

Due after five years through ten years
48,243

 
50,017

 
44,736

 
45,501

Due after ten years
125,828

 
132,289

 
154,856

 
158,097

Total securities held to maturity
$
200,839

 
$
209,717

 
$
205,374

 
$
209,437

 
(1) The carrying value includes $5.6 million as of September 30, 2016 and $6.8 million as of December 31, 2015 of net unrealized gains present at the time of transfer from available for sale securities, net of any accretion.
 
The following table presents the estimated fair value of held to maturity securities which were pledged to secure public deposits as permitted or required by law as of September 30, 2016 and December 31, 2015 (dollars in thousands):
 
 
September 30, 2016
 
December 31, 2015
Public deposits
$
209,717

 
$
207,140

Total pledged securities
$
209,717

 
$
207,140

 
Restricted Stock, at cost
Due to restrictions placed upon the Bank’s common stock investment in the Federal Reserve Bank and FHLB, these securities have been classified as restricted equity securities and carried at cost. These restricted securities are not subject to the investment security classifications and are included as a separate line item on the Company’s Consolidated Balance Sheets. At September 30, 2016 and December 31, 2015, the FHLB required the Bank to maintain stock in an amount equal to 4.25% of outstanding borrowings and a specific percentage of the Bank’s total assets. The Federal Reserve Bank required the Bank to maintain stock with a par value equal to 6% of its outstanding capital at both September 30, 2016 and December 31, 2015. Restricted equity securities consist of Federal Reserve Bank stock in the amount of $23.8 million for both September 30, 2016 and December 31, 2015 and FHLB stock in the amount of $39.4 million and $28.0 million as of September 30, 2016 and December 31, 2015, respectively.
 
Other-Than-Temporary-Impairment
During each quarter, the Company conducts an assessment of the securities portfolio for OTTI consideration. The assessment considers factors such as external credit ratings, delinquency coverage ratios, market price, management’s judgment, expectations of future performance, and relevant industry research and analysis. An impairment is other-than-temporary if any of the following conditions exist: the entity intends to sell the security; it is more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis; or the entity does not expect to recover the security’s entire amortized cost basis (even if the entity does not intend to sell). If a credit loss exists, but an entity does not intend to sell the impaired debt security and is not more likely than not to be required to sell before recovery, the impairment is other-than-temporary and should be separated into a credit portion to be recognized in earnings and the remaining amount relating to all other factors recognized as other comprehensive loss. Based on the assessment for the three and nine months ended September 30, 2016, and in accordance with the guidance, no OTTI was recognized. For the year ended December 31, 2015, the Company determined that a municipal security in the available for sale portfolio incurred credit-related OTTI of $300,000.  During the quarter ended March 31, 2016, the municipal security was sold.  As a result, the Company recognized an additional loss on sale of the previously written down security.
 

-14-


Realized Gains and Losses
The following table presents the gross realized gains and losses on the sale of securities available for sale and the proceeds from the sale of securities during the three and nine months ended September 30, 2016 and 2015 (dollars in thousands). The Company did not sell any investment securities that are held to maturity.
 
 
Three Months Ended
September 30, 2016
 
Nine Months Ended
September 30, 2016
Realized gains (losses):
 

 
 

Gross realized gains
$

 
$
242

Gross realized losses

 
(97
)
Net realized gains
$

 
$
145

 
 
 
 
Proceeds from sales of securities
$
2,848

 
$
18,272


 
Three Months Ended
September 30, 2015
 
Nine Months Ended
September 30, 2015
Realized gains (losses):
 

 
 

Gross realized gains
$
75

 
$
759

Gross realized losses

 
(87
)
Net realized gains
$
75

 
$
672

 
 
 
 
Proceeds from sales of securities
$
5,771

 
$
63,928


 
3. LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans are stated at their face amount, net of deferred fees and costs, and consist of the following at September 30, 2016 and December 31, 2015 (dollars in thousands):

 
September 30, 2016
 
December 31, 2015
Construction and Land Development
$
776,430

 
$
749,720

Commercial Real Estate - Owner Occupied
857,142

 
860,086

Commercial Real Estate - Non-Owner Occupied
1,454,828

 
1,270,480

Multifamily Real Estate
339,313

 
322,528

Commercial & Industrial
509,857

 
435,365

Residential 1-4 Family
999,361

 
978,469

Auto
255,188

 
234,061

HELOC
524,097

 
516,726

Consumer and all other
432,702

 
304,027

Total loans held for investment, net(1)
$
6,148,918

 
$
5,671,462

 
(1) Loans, as presented, are net of deferred fees and costs totaling $3.3 million and $3.0 million as of September 30, 2016 and December 31, 2015, respectively.
 

-15-


The following table shows the aging of the Company’s loan portfolio, by segment, at September 30, 2016 (dollars in thousands):
 
 
30-59 Days
Past Due
 
60-89 Days
Past Due
 
Greater than 90
Days and still
Accruing
 
PCI
 
Nonaccrual
 
Current
 
Total Loans
Construction and Land Development
$
309

 
$
697

 
$
610

 
$
3,205

 
$
2,301

 
$
769,308

 
$
776,430

Commercial Real Estate - Owner Occupied
1,411

 
365

 
304

 
19,064

 
1,609

 
834,389

 
857,142

Commercial Real Estate - Non-Owner Occupied
324

 

 

 
18,141

 

 
1,436,363

 
1,454,828

Multifamily Real Estate

 

 

 
2,079

 

 
337,234

 
339,313

Commercial & Industrial
567

 
51

 
77

 
1,145

 
1,344

 
506,673

 
509,857

Residential 1-4 Family
4,985

 
6,345

 
2,005

 
16,828

 
5,279

 
963,919

 
999,361

Auto
1,846

 
239

 
28

 

 
231

 
252,844

 
255,188

HELOC
2,600

 
899

 
407

 
1,498

 
1,464

 
517,229

 
524,097

Consumer and all other
1,713

 
1,037

 
98

 
386

 
449

 
429,019

 
432,702

Total loans held for investment
$
13,755

 
$
9,633

 
$
3,529

 
$
62,346

 
$
12,677

 
$
6,046,978

 
$
6,148,918

 
The following table shows the aging of the Company’s loan portfolio, by segment, at December 31, 2015 (dollars in thousands):

 
30-59 Days
Past Due
 
60-89 Days
Past Due
 
Greater than 90
Days and still
Accruing
 
PCI
 
Nonaccrual
 
Current
 
Total Loans
Construction and Land Development
$
3,155

 
$
380

 
$
128

 
$
5,986

 
$
2,113

 
$
737,958

 
$
749,720

Commercial Real Estate - Owner Occupied
1,714

 
118

 
103

 
27,388

 
3,904

 
826,859

 
860,086

Commercial Real Estate - Non-Owner Occupied
771

 

 
723

 
13,519

 
100

 
1,255,367

 
1,270,480

Multifamily Real Estate

 

 
272

 
1,555

 

 
320,701

 
322,528

Commercial & Industrial
1,056

 
27

 
124

 
1,813

 
429

 
431,916

 
435,365

Residential 1-4 Family
15,023

 
6,774

 
3,638

 
21,159

 
3,563

 
928,312

 
978,469

Auto
2,312

 
233

 
60

 

 
192

 
231,264

 
234,061

HELOC
2,589

 
1,112

 
762

 
1,791

 
1,348

 
509,124

 
516,726

Consumer and all other
1,167

 
689

 
19

 
526

 
287

 
301,339

 
304,027

Total loans held for investment
$
27,787

 
$
9,333

 
$
5,829

 
$
73,737

 
$
11,936

 
$
5,542,840

 
$
5,671,462

 

-16-


The following table shows the PCI loan portfolios, by segment and their delinquency status, at September 30, 2016 (dollars in thousands):
 
 
30-89 Days Past
Due
 
Greater than 90
Days
 
Current
 
Total
Construction and Land Development
$
29

 
$

 
$
3,176

 
$
3,205

Commercial Real Estate - Owner Occupied
737

 
634

 
17,693

 
19,064

Commercial Real Estate - Non-Owner Occupied
1,921

 
125

 
16,095

 
18,141

Multifamily Real Estate

 

 
2,079

 
2,079

Commercial & Industrial
45

 
57

 
1,043

 
1,145

Residential 1-4 Family
1,686

 
775

 
14,367

 
16,828

HELOC
122

 
435

 
941

 
1,498

Consumer and all other

 

 
386

 
386

Total
$
4,540

 
$
2,026

 
$
55,780

 
$
62,346

 
The following table shows the PCI loan portfolios, by segment and their delinquency status, at December 31, 2015 (dollars in thousands):
 
 
30-89 Days Past
Due
 
Greater than 90
Days
 
Current
 
Total
Construction and Land Development
$
369

 
$
241

 
$
5,376

 
$
5,986

Commercial Real Estate - Owner Occupied
1,139

 
1,412

 
24,837

 
27,388

Commercial Real Estate - Non-Owner Occupied
755

 
202

 
12,562

 
13,519

Multifamily Real Estate

 

 
1,555

 
1,555

Commercial & Industrial
209

 
21

 
1,583

 
1,813

Residential 1-4 Family
2,143

 
1,923

 
17,093

 
21,159

HELOC
410

 
458

 
923

 
1,791

Consumer and all other

 

 
526

 
526

Total
$
5,025

 
$
4,257

 
$
64,455

 
$
73,737

 

-17-


The Company measures the amount of impairment by evaluating loans either in their collective homogeneous pools or individually. The following table shows the Company’s impaired loans, excluding PCI loans related to the StellarOne acquisition, by segment at September 30, 2016 and December 31, 2015 (dollars in thousands):
 
September 30, 2016
 
December 31, 2015
 
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
 
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
Loans without a specific allowance
 

 
 

 
 

 
 

 
 

 
 

Construction and Land Development
$
25,171

 
$
25,647

 
$

 
$
33,250

 
$
33,731

 
$

Commercial Real Estate - Owner Occupied
6,414

 
6,579

 

 
7,781

 
8,983

 

Commercial Real Estate - Non-Owner Occupied
3,752

 
3,752

 

 
5,328

 
5,325

 

Multifamily Real Estate

 

 

 
3,828

 
3,828

 

Commercial & Industrial
952

 
1,362